According to a survey conducted by Yale University, fears of a stock market crash similar to the one in 1987 are at their highest since the start of the pandemic. The survey found that 44% of institutional investors believe there is at least a 10% likelihood of a crash occurring in the next six months. This level of concern is just below the levels reported in March 2020, when 51% of institutional investors feared a similar outcome.
The US Confidence Index, which measures investors' belief in the likelihood of a 1987-style stock market crash, is currently at its highest level since the early months of the pandemic. During that time, the S&P 500 experienced a 30% crash over a few weeks.
The survey also revealed that around 34% of individual investors believe there is a greater than 10% probability of a crash similar to Black Monday happening in the next six months. Additionally, 44% of institutional investors share this belief. These figures are higher compared to March 2020, when 26% of individual investors and 51% of institutional investors expressed similar concerns.
A number of bearish investors on Wall Street have remained worried about the possibility of a recession and a significant sell-off in stocks, despite inflation cooling and the resilience of the US economy. This concern stems from the possibility that the Federal Reserve could keep interest rates higher for a longer period than expected, potentially pushing the economy into a downturn.
The federal funds rate was raised to a target range of 5.25%-5.5% in July, the highest level since 2001. Market expectations indicate a 53% chance that rates will remain in this range in December, with a 39% chance of a 25 basis-point increase by year-end.
The potential impact of higher interest rates on the economy is a cause for concern. The labor market has already begun to slow its growth, and Americans are starting to exhaust their excess savings, which have been a significant support for the economy since the pandemic.
According to the New York Fed, there is a 66% chance of the economy tipping into a recession by July 2024. JPMorgan strategists have also warned that even in the case of a mild recession, stocks could drop by at least 15%.